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Tuesday, March 29, 2011

Those Cotton Pickin' Farmers are to blame for higher food prices! No, really, it is literally the fault of Cotton Picking farmers that food prices will increase...

In Microeconomics, farmers and the commodities they grow are used to illustrate a perfectly competitive market. The main characteristic of a firm in a perfectly competitive market is that they are a "price-taker". They have no pricing power and must accept the price dictated by the market. Many farmers in the Farm Belt are indifferent to the commodity they grow---the land, machinery, and the know-how they possess can be used to grow corn, wheat, soybeans, or cotton. Their main concern is which one will give them the most revenue per acre planted. Seems like cotton is the winner in this regard. The problem is that cotton is the only one in the group you can't eat. More land allocated to growing cotton, means less allocated to growing food. Food prices have been increasing in the past year. These increases can be absorbed by rich countries, but not so much for those on "the margin". Much unrest in the Middle East and elsewhere has its roots in high food prices. As more farmers make this decision, is will only makes things worse in developing/poor countries as they try to meet the food needs of their people.

"...But this spring, many farmers in southern states will be planting cotton in ground where they used to grow corn, soybeans or wheat — spurred on by cotton prices that have soared as clothing makers clamor for more and poor harvests crimp supply.

The result is an acreage war between rival commodities used to feed and clothe the world’s population.

“There’s a lot more money to be made in cotton right now,” said Ramon Vela, a farmer here in the Texas Panhandle, as he stood in a field where he grew wheat last year, its stubble now plowed under to make way for cotton. Around the first week of May, Mr. Vela, 37, will plant 1,100 acres of cotton, up from 210 acres a year ago. “The prices are the big thing,” he said. “That’s the driving force.”

Economists, agricultural experts and government officials are predicting that many farmers, both in the United States and abroad, will join Mr. Vela this year in chasing the higher profits to be made in cotton — with consequences that could ripple across the globe.

“It’s good for the farmer, but from a humanitarian perspective it’s kind of scary,” said Webb Wallace, executive director of the Cotton and Grain Producers of the Lower Rio Grande Valley. “Those people in poor countries that have a hard time affording food, they’re going to be even less able to afford it now.”